The Supply-Chain Spectre Returns

As Shenzhen, home to much of the world’s technology manufacturing, is forced into another lockdown due to a Covid surge, supply-chain disruptions loom yet again

The world is bracing for another supply-chain disruption as COVID-19 cases spike in China – especially in the industrial hub of Shenzhen. Home to much of the world’s technology manufacturing, Shenzhen is being locked down yet again due to a surge in COVID cases. The manufacturing powerhouse province, where the city is located, accounts for 11% of GDP or US$1.96 trillion, nearly equal to that of Spain and South Korea. According to Bloomberg Economics, Guangdong’s US$795 billion worth of exports in 2021 accounted for 23% of China’s shipments that year – the most among all provinces – suggesting there may be fallout for growth and inflation internationally. Shenzhen alone had exports of US$303 billion.

Why it matters

The seven-day lockdown of Shenzhen – a key port city and southern tech powerhouse – and the partial lockdown of Shanghai and other Chinese cities over COVID-19 spikes will exacerbate supply-chain and inflation issues. Especially the Shenzhen lockdown will have a significant effect on the global ICT supply chain.

Pandemic restrictions imposed last week in Shenzhen and Shanghai have forced companies like Apple supplier Foxconn to suspend production. The world’s single biggest manufacturer of high-tech kit – Foxconn – is already cutting output, according to Reuters, while Huawei is headquartered there too. For now, the lockdown is supposed to last just a week but, as we have learnt only too well over the past couple of years, this can be extended indefinitely at a moment’s notice – given the volatile nature of the pandemic.

Spike in Hong Kong

Neighbouring Hong Kong also recently experienced a major spike in cases of the Omicron variant. However, it seems to be following the usual epidemiological pattern experienced elsewhere, in which the spike in new cases falls off almost as rapidly as it grows. The image below is a screenshot from a Google search, which derives its data from the COVID-19 Data Repository by the Center for Systems Science and Engineering (CSSE) at Johns Hopkins University, that illustrates the Hong Kong situation.

The Hong Kong Free Press reports that the entire city of 17 million people has been put under lockdown. It notes that China is still attempting to enforce a ‘zero-Covid’ policy, which aims to identify outbreaks of the virus early and impose severe restrictions in a bid to prevent its spread.

According to the Financial Times, in Hong Kong, the vast majority of people remain unvaccinated for some reason – even vulnerable ones – which has contributed to an exceptionally high death rate. On top of that, the zero-Covid policy meant there had been very few cases there prior to this outbreak. The consequent near-absence of natural immunity among its population will also have exaggerated the sudden spike.

A vision of delusion

China is one of a shrinking minority of countries that are still clinging onto the delusion of zero-Covid. With the very contagious but relatively low-impact Omicron, many countries belatedly concluded that the best policy was to focus on vaccinating and protecting the vulnerable while letting the young and healthy take their chances, as we have always done with other respiratory viruses such as flu and the common cold.

Nearly all of the relatively free world has finally realised, after two years of incredibly costly and largely futile experiments with lockdowns, that it’s not sustainable to try to completely insulate yourself from a virus such as COVID. The resulting costs are just too high. China, with its greater powers of centralised control, begs to differ. Maybe, this lockdown will succeed in nipping the Shenzhen outbreak in the bud, but surely there could be another before long, and yet another after that!